ISSB S1/S2 UK Endorsement: Timeline, Requirements, and Readiness Checklist

The Endorsement Process

The International Sustainability Standards Board (ISSB) published IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) in June 2023. These standards represent the global baseline for sustainability disclosure, developed under the IFRS Foundation’s governance framework and designed to meet the information needs of investors and capital markets.

The UK government signalled early adoption intent. The Department for Business and Trade (DBT), working with the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC), has been progressing endorsement through the UK Sustainability Disclosure Standards (UK SDS) framework. The endorsement assessment, conducted by the UK Endorsement Board for sustainability reporting, evaluates whether the standards are appropriate for UK application, with particular attention to proportionality for the UK company population and interoperability with existing UK requirements.

The consultation process ran through 2024 and 2025. The current expectation is that endorsement will be confirmed in 2026, with mandatory application beginning for the largest UK companies (likely those already subject to the existing TCFD-aligned requirements under the Companies Act and FCA rules) from financial years beginning on or after 1 January 2027. Phased implementation for smaller listed and large private companies is anticipated, mirroring the approach taken with TCFD.

IFRS S1: General Sustainability Disclosure Requirements

S1 establishes the architectural framework for sustainability-related financial disclosures. It requires companies to disclose information about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, and long term.

The standard is built on four pillars, directly inherited from the TCFD framework but expanded in scope and specificity:

Governance. Disclose the governance processes, controls, and procedures used to monitor, manage, and oversee sustainability-related risks and opportunities. This includes: which body or individual has oversight responsibility, how sustainability considerations are embedded in the entity’s strategy and major decisions, the skills and competencies available at governance level, and how targets and performance are monitored.

Strategy. Disclose the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s business model, value chain, strategy, and financial position. This requires identification of specific risks and opportunities (not generic categories), their expected financial effects (quantified where practicable), and how the entity’s strategy responds to them. S1 requires disclosure across short, medium, and long-term time horizons, with the entity defining what each means for its business and disclosing the rationale.

Risk management. Disclose the processes used to identify, assess, prioritise, and monitor sustainability-related risks and opportunities. Critically, S1 requires disclosure of how these processes are integrated with the entity’s overall risk management framework — sustainability risk management cannot exist as a parallel process disconnected from enterprise risk.

Metrics and targets. Disclose the metrics used to measure and monitor sustainability-related risks and opportunities, and the targets set. Where industry-based metrics are available (see below), these must be considered. Cross-industry metrics include those related to climate (addressed in detail by S2), but S1 extends to any sustainability matter that creates financial risk or opportunity for the entity.

IFRS S2: Climate-Related Disclosures

S2 applies the four-pillar framework specifically to climate-related risks and opportunities. While S1 covers all sustainability matters, S2 provides granular, prescriptive requirements for climate disclosure.

Physical risks. Companies must identify and disclose exposure to acute physical risks (extreme weather events, flooding, wildfire) and chronic physical risks (sea-level rise, temperature change, water stress). The assessment must be location-specific and asset-level where material, not limited to generic sector-level statements.

Transition risks. Disclosure of exposure to policy and legal risks (carbon pricing, emissions regulation), technology risks (stranded assets, disruptive technologies), market risks (shifting demand, input cost changes), and reputational risks associated with the transition to a lower-carbon economy. This requires analysis of the entity’s specific exposure, not generic sectoral commentary.

Climate resilience. S2 requires climate scenario analysis to assess the resilience of the entity’s strategy to climate-related changes and uncertainties. The standard requires use of a scenario consistent with the latest international agreement on climate change (currently the Paris Agreement) and at least one additional scenario. The analysis must consider the entity’s capacity to adjust and adapt — this is not a tick-box exercise but a substantive strategic assessment.

Greenhouse gas emissions. S2 requires disclosure of absolute Scope 1, Scope 2, and Scope 3 GHG emissions, measured in accordance with the GHG Protocol. Scope 2 must be disclosed using both the location-based and market-based methods. Scope 3 must cover all material categories, with the specific categories disclosed. The standard provides transitional relief for Scope 3 in the first year of application, but companies should not use this as an excuse to defer Scope 3 data architecture — investors expect this data, and the relief is time-limited.

Transition plans. Where a company has a climate transition plan, S2 requires detailed disclosure of: the targets (including whether they are informed by scientific consensus), the scope and methodology, the assumptions underlying the plan, the use of carbon credits (including the proportion of target achievement attributed to credits), and progress against interim milestones.

Industry-Based Metrics: SASB Integration

A distinctive feature of the ISSB standards is the incorporation of industry-based metrics derived from the SASB Standards (now maintained by the ISSB). S2 requires companies to consider the industry-based disclosure topics and metrics in the SASB Standards and disclose those that are relevant to the entity’s circumstances.

This means that a mining company will be expected to disclose different climate-related metrics from a financial services company. The SASB Standards provide 77 industry-specific sets of metrics across 11 sectors. Companies should identify which SASB industry classification applies to their activities and review the associated metrics for relevance.

This is a significant practical requirement. Many UK companies are unfamiliar with the SASB framework and will need to assess which industry metrics apply, whether they have the data to report them, and how they interact with other reporting requirements.

Interaction with Existing UK Requirements

UK companies already operate under multiple sustainability-related disclosure obligations. Understanding how ISSB S1/S2 interacts with these is essential for efficient implementation:

TCFD. The UK was an early adopter of TCFD-aligned disclosure, making it mandatory for premium-listed companies (2021), large private companies and LLPs (2022), and FCA-regulated asset managers and owners (2022). ISSB S1/S2 subsumes TCFD — the four-pillar structure is identical, but S1/S2 is materially more prescriptive. Companies that have implemented TCFD well have a foundation, but will need to upgrade their disclosures in areas including: quantified financial effects, scenario analysis rigour, Scope 3 completeness, and industry-based metrics.

SECR (Streamlined Energy and Carbon Reporting). SECR requires large UK companies and LLPs to report energy use and GHG emissions (Scope 1 and 2) in their annual reports. ISSB S2 goes significantly beyond SECR by requiring Scope 3, scenario analysis, transition plan disclosure, and climate resilience assessment. SECR data will feed into ISSB reporting but is not sufficient on its own.

Companies Act s172. The s172(1) statement requires directors to have regard to, among other things, the impact of the company’s operations on the environment and the community. ISSB S1’s governance and strategy pillars provide a structured framework for demonstrating this regard with evidence rather than aspiration.

Proportionality Relief

The UK endorsement process has given particular attention to proportionality. The expectation is that UK SDS will include reliefs for smaller entities within scope, potentially including:

• Extended transitional periods for Scope 3 GHG emissions disclosure
• Simplified scenario analysis requirements for companies with lower climate exposure
• Phased application of industry-based metrics
• Proportionate governance disclosure for companies with simpler sustainability governance structures

However, proportionality relief should not be confused with exemption. The core disclosure requirements — governance, strategy, risk management, and key metrics — will apply to all companies in scope. The relief relates to the granularity and complexity of disclosure, not to whether disclosure is required at all.

Connection to CSRD: Overlap and Divergence

UK companies subject to both CSRD (through EU subsidiaries or the extraterritorial provisions) and UK SDS face a dual reporting landscape. Understanding where the frameworks overlap and diverge is critical for efficient implementation:

Overlap: Both frameworks require climate-related disclosures covering Scope 1, 2, and 3 emissions, governance, strategy, risk management, and targets. The TCFD-derived four-pillar structure is common to both. EFRAG and the ISSB have published detailed interoperability mapping showing substantial alignment, particularly between ESRS E1 and ISSB S2.

Divergence: The fundamental difference is materiality. CSRD uses double materiality (impact on people/environment AND financial risk to the company). ISSB uses financial materiality only (how sustainability matters affect enterprise value). This means that topics material under CSRD’s impact lens may not be material under ISSB’s financial lens, and vice versa. In practice, most topics that are material under one approach are also material under the other, but the framing and emphasis of disclosures will differ.

Additionally, CSRD covers all sustainability topics (environment, social, governance) through ten topical standards. ISSB currently has only S2 for climate-specific disclosure; other sustainability topics are addressed at a general level through S1. The ISSB has indicated future standards on biodiversity and human capital, but these are not yet finalised.

Readiness Checklist: 15 Items

The following checklist covers the essential preparations for ISSB S1/S2 compliance. Each item should have a designated owner, a target completion date, and documented evidence of completion.

Governance:

1. Assign board-level or committee-level oversight responsibility for sustainability-related risks, opportunities, and disclosure
2. Ensure adequate sustainability expertise is available at governance level (through board members, committee advisers, or external expertise)
3. Establish clear management accountability for sustainability data quality, disclosure preparation, and target monitoring

Risk management:

4. Integrate sustainability-related risks into the enterprise risk management framework — not as a separate ESG risk register but as part of the principal risk assessment
5. Document the process for identifying, assessing, and prioritising sustainability-related risks and opportunities, including frequency of review and escalation thresholds

Data and systems:

6. Conduct a data gap analysis: map every metric required under S1/S2 and the applicable SASB industry standards against your current data availability
7. Establish Scope 3 GHG emissions measurement capability covering all material categories (the GHG Protocol identifies 15 categories — determine which are material to your business)
8. Implement data controls: input validation, reconciliation, variance analysis, and audit trails for all sustainability metrics
9. Ensure your data systems can produce location-based and market-based Scope 2 calculations

Strategy and analysis:

10. Conduct or update climate scenario analysis using at least two scenarios (including one consistent with the Paris Agreement goals), covering physical and transition risks across defined time horizons
11. Quantify the current and anticipated financial effects of climate-related risks and opportunities on the balance sheet, income statement, and cash flows — or explain why quantification is not practicable
12. If you have a transition plan, document it with sufficient specificity to meet S2 requirements: targets, methodology, assumptions, carbon credit usage, interim milestones, and progress

Disclosure and assurance:

13. Identify the applicable SASB industry classification and review industry-based metrics for relevance and data availability
14. Prepare draft disclosures against the full S1/S2 requirements and conduct an internal review against the standards’ disclosure objectives
15. Engage with your auditor or prospective assurance provider early to understand their expectations for evidence, controls, and readiness assessment

What Boards Need to Understand

ISSB S1/S2 is not a reporting compliance exercise to be delegated to the sustainability team. It has direct implications for fiduciary duty, strategic decision-making, and director liability.

Fiduciary duty. Directors have a duty to act in the best interests of the company (Companies Act s172). Where climate-related risks are material to the company’s financial position — and for most companies, they are — failing to identify, assess, and manage those risks is a potential breach of duty. The ISSB standards provide the framework for demonstrating that this duty is being discharged.

Liability. Sustainability disclosures under ISSB S1/S2 will be part of the annual report, which is a document for which directors bear personal responsibility. Misleading or incomplete disclosure creates legal exposure under the Companies Act, the FCA’s disclosure requirements (for listed companies), and potentially the anti-greenwashing rule.

Strategic value. Beyond compliance, ISSB S1/S2 provides a structured framework for understanding how sustainability factors affect business value. Companies that treat this as a strategic exercise — using the risk and opportunity identification process to inform capital allocation, supply chain strategy, and business model adaptation — will extract more value than those that treat it as a reporting burden.

Investor expectations. Institutional investors increasingly use ISSB-aligned data in investment decision-making, portfolio construction, and stewardship. Companies that produce high-quality ISSB-aligned disclosures will find it easier to access capital at favourable terms. Those that produce boilerplate disclosures will face more challenging investor engagement.

The Integrated Compliance Opportunity

For UK companies subject to CSRD (through EU operations), UK SDS (ISSB S1/S2), SDR (if FCA-regulated), TCFD, and SECR, the prospect of multiple overlapping reporting obligations is daunting. The strategic response is not to build separate compliance workstreams for each framework, but to design a single sustainability data and disclosure architecture that serves all of them.

Start with the most demanding framework (CSRD/ESRS for companies in scope, or ISSB S1/S2 for UK-only reporters), build the data infrastructure and governance processes to meet its requirements, and then map outputs to the other frameworks. The interoperability between ESRS and ISSB is sufficient to support this approach. The marginal effort to produce disclosures for a second framework, when the data architecture is already in place, is modest compared to the cost of building parallel systems.